Comments, observations and thoughts from two left coast bloggers on applied statistics, higher education and epidemiology. Joseph is a new assistant professor. Mark is a marketing statistician and former math teacher.

Friday, August 17, 2012

So, when somebody says that the government should buy paper from a private provider, hey, great. There are lots of buyers and sellers of paper. Go for it. If somebody wants to contract out janitorial work or food service, again, there are lots of buyers and sellers of those services. But I’ve never seen how contracting out more specifically governmental tasks really improves things. You go from having a monopoly provider, with all the disadvantages thereof, to a monopsony buyer, that still has to exert oversight (which is subject to all sorts of information problems and all sorts of good and bad incentives). And if there’s only one buyer, that buyer is, effectively, a monopoly provider for the public.

In all sorts of arenas, information is the real limiting factor. I like to apply this to fields like health care. There is no real open market in health care. We have subsidized insurance or government provided insurance for the majority of customers. The plans that exist often lock in networks that make it more challenging to comparison shop. Most customers do not have the ability to shop around on price. Treatments are legally protected from being sold on the open market (you can't self treat with a statin). Medical doctors are a protected guild that has a limited number of residencies (and thus a cap on members) leading to increased costs due to shortages.

None of this looks like a functional market with good information, equal quality goods, freedom of entry/exit, or substitution effects on treatment.